Final Rule under the US Terrorism Risk Insurance
We refer to our previous circular No.02-018 of 17 February 2003 regarding the P&I War Risks Cover and the US Terrorism Risk Insurance ("TRIA"). We would like to inform the Members of further developments in respect of the regulations implementing the TRIA.
On 25 February 2003 the US Treasury Department ("Treasury") issued an Interim Final Rule ("IFR"), in which "insurer" is defined as any entity approved or accepted for the purpose of offering property and casualty insurance by a Federal agency, but only to the extent of such federally approved commercial property and casualty insurance offered by the insurer. This meant that, for the P&I Clubs, the TRIA indemnity applies only to terrorism losses from those US-flag vessels which are financed by the US Maritime Administration ("MARAD") or eligible to benefit from a loan guarantee by a MARAD program. These constitute only about 0.5% of the vessels calling at US ports.
The International P&I Group ("Group") submitted comments on the IFR stressing therein that it believed the Treasury had chosen to restrict the application of the TRIA Program to only a few vessels in a way that Congress could not have meant. The Group requested the Treasury to drop this restriction so that all the Group's vessels while in US waters could have the same TRIA indemnification for terrorism exposure regardless of flag.
On 8 July 2003 the Treasury issued a Final Rule. The Treasury acknowledged that a "broader" interpretation of federally-approved insurers' role is possible under the Act, but repeated their assertion that the narrow rule is necessary for the effective and efficient administration of the TRIA Program. As far as P&I insurance was concerned, no change was made to the scope of the TRIA coverage as originally put forth in the IFR. Consequently the Treasury has determined that the TRIA indemnification applies only to losses from MARAD vessels. As there is little possibility that the Treasury will implement any changes, the Group feels that the only course of action is to do nothing for the time being.
However, if a vessel entered with the Association was involved in an act of terrorism, as defined in the TRIA, causing P&I claims, the Association's P&I War Risks Cover would respond to these claims subject to the Association's Rules/Special Clause in the same way as for the other Group Clubs. Therefore, the above developments will not cause any inconvenience for the Members.